Hospital Billings Vary Widely in Memphis

By Jennifer Johnson Backer

Government data released for the first time last week showed that hospitals across the nation bill Medicare widely different amounts for the same procedures.

St. James Mercy Hospital in Hornell, N.Y., charged $29,637 for patients who received a respiratory system diagnosis and remained on a ventilator more than 96 hours, while Stanford Hospital in Stanford Hospital, Calif., charged $929,119.

Here in Memphis, those same price swings exist within the market, raising questions about how hospitals set prices and why they vary so widely.

At Baptist Memorial Hospital-Memphis, the fixed price for a major joint replacement without major complications averaged $36,477 per patient in 2011, while Methodist Le Bonheur Healthcare charged an average of $64,976. Saint Francis Hospital-Memphis charged an average of $64,482 for the same procedure and The Regional Medical Center at Memphis billed $59,564.

“This is interesting information, but I don’t know what it really does to help a patient understand how much their bill is going to cost them.”

–Chris McLean, Methodist Le Bonheur Healthcare

The fixed prices for some procedures vary more widely than others both in Memphis and across the nation. At Saint Francis, the fixed price for patients hospitalized with pneumonia without complications averaged $32,085, while just across town, Baptist Memorial Hospital charged an average of $15,214 for the same diagnosis.

The data set released on May 8 by the Centers for Medicare and Medicaid Services contains bills and Medicare payments for 3,300 hospitals in 2011 for the 100 most common treatments and procedures performed in hospitals. The data release was widely lauded by consumer advocates, President Barack Obama’s administration and health care advocates who said the data call into question medical billing practices as the nation attempts to curtain rising costs.

While the Obama administration has said it hopes releasing the information will lead to greater transparency on hospital pricing and pressure hospitals to lower their charges, hospital experts and advocates have said the media has unfairly focused on charges, rather than what Medicare actually reimburses. While those price swings also vary, they tend to have less variation than the charges. Many hospital advocates have concluded the information won’t make medical charges more uniform.

“This is interesting information, but I don’t know what it really does to help a patient understand how much their bill is going to cost them,” explained Chris McLean, executive vice president of finance for Methodist Le Bonheur Healthcare in Memphis. “It’s all determined by how their (a patient’s) health plan is designed and what their plan pays the hospital, not what the hospital charges.”

McLean said the data will be of limited help to consumers who want to select the lowest-cost hospitals with the best outcomes and quality of care.

Hospitals are required to set a fixed value of treatment for procedures, but commercial insurance carriers, and Medicare and Medicaid – which cover low-income patients and elderly – all negotiate their own payment rates.

When there are huge price variations between what a hospital bills for the uninsured and commercially insured patients and what it is actually reimbursed, the total payment amount is often subject to negotiation. At Methodist, McLean said a recent internal analysis showed 97 percent of uninsured patients paid $1,000 or less for their care. The hospital system conducts a financial screening to assess a patient’s ability to pay.

“The reality is in this market, they have no ability to pay,” he said.

The data released by CMS doesn’t account for the length of a patient’s hospital stay, regional pricing variations tied to the cost of living, the complexity of a patient’s treatment, capital and supply costs and many other factors that influence the cost of care and pricing. But national experts said even when those factors are accounted for the wide range of hospital charges does not explain why one hospital in the same region charges vastly more than another hospital.

In Memphis, most hospitals tend to bill less than the U.S. average – though there are still significant variations between hospitals. Saint Francis Hospital-Bartlett and Saint Francis-Memphis bill 1 to 2 times the U.S. average, as does The MED, but Baptist Memorial Hospital and Methodist Le Bonheur Healthcare bill less than the U.S. average.

“We look at this periodically – although it is dated information – it’s a couple of years old. But we look at this data to see where we are in comparison to our competitors and to look for disparities,” he said. “It didn’t shock us to see the results.”

Like Barham, Methodist’s McLean said he wasn’t surprised by the data – but he remains concerned it doesn’t provide the price transparency patients and government officials are seeking.

“I am not sure how this helps patients make good decisions about their care, and that’s what bothers me to some degree. But there is still no way I’m going to defend where our prices have gotten,” McLean said, referring to hospitals in general and not Methodist specifically. “It’s more important to understand what your insurance company pays the hospital.”

McLean and other hospital executives across the country said the data might force some hospital systems to make adjustments to their billing charges. But that’s still unlikely to change Medicare reimbursements or to directly impact the rates patients pay for medical services.

Medicare does not actually pay the amount a hospital charges but instead uses a system of standardized payments to reimburse hospitals for treating specific conditions. While CMS pays a standard wage-adjusted rate across the nation, teaching hospitals and hospitals that treat more poor and elderly patients receive a little extra from Medicare and Medicaid.

Private insurers do not pay the full charge either, but negotiate payments with hospitals for specific treatments. Since most patients are covered by Medicare or have private insurance, they are not directly affected by what hospitals charge. Even the uninsured rarely are billed a hospital’s list price.

David McClure, the Tennessee Hospital Association’s senior vice president of finance shared many of McLean’s concerns: “Tennessee’s hospitals want consumers to be informed, however the manner in which CMS released the data and the lack of guidance in how to understand the data is very misleading,” he said.